 Financial Innovation and Divisia Money in Taiwan: Comparative Evidence from Neural Network and Vector Error‐Correction Forecasting ModelsJane M. Binner, Alicia M. Gazely, Shu-Heng Chen and Bin‐Tzong Chie Contemporary Economic Policy, 2004, vol. 22, issue 2, 213-224 Abstract: In this article a Divisia monetary index is constructed for the Taiwan economy, and its inflation forecasting potential is compared with that of its traditional simple sum counterpart. The Divisia index is adjusted in two ways to allow for the financial liberalization that Taiwan has experienced since the 1970s. The powerful artificial intelligence technique of neural networks is used and is found to beat the conventional econometric techniques in a simple inflation forecasting experiment. The preferred inflation forecasting model is achieved using networks that employ a Divisia M2 measure of money that has been adjusted to incorporate a learning mechanism to allow individuals to gradually alter their perceptions of the increased productivity of money. The explanatory power of the two innovation‐adjusted Divisia aggregates dominates that of the simple sum counterpart in the majority of cases. (JEL C4, E4, E5) Date: 2004 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:coecpo:v:22:y:2004:i:2:p:213-224 Ordering information: This journal article can be ordered from Access Statistics for this article Contemporary Economic Policy is currently edited by Brad R. Humphreys More articles in Contemporary Economic Policy from Western Economic Association International Contact information at EDIRC. |
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